The recent energy price crisis should spark Australia into reforming its market rules and investing into new onshore gas reserves in the nation’s south-east, Shell’s Australian chairman Andrew Smith says.
Speaking just weeks before Victoria is due to decide on the future of its onshore gas moratorium, Mr Smith warned that electricity prices were set to double or quadruple as part of the cost of having a diversified energy mix.
Mr Smith said brown coal had to be removed from the energy system over time while renewable energy grew its share, but he said the role of renewables would be limited until energy storage technology was more advanced.
“It is important that we don’t get too far with renewables until we’ve got a way of managing its intermittency,” he said.
“It is a cold hard reality that as we move from brown coal generated electricity to renewables, base load electricity will move from circa $30 to $40 a megawatt hour to $80 to $100.”
Mr Smith said such prices would occur even if gas and renewables were jointly used for base-load power.
“There is a cost of having a mix… you can come at that $80 to $100 in a few different ways, but you end up with that number, and it is a number that South Australia routinely sees,” he said.
Energy prices in South Australia surged to record highs last month as expensive gas was used to meet the demand that renewables could not meet, at a time when supply of cheap coal-fired power from Victoria was temporarily restricted.
Gas prices have surged after LNG export facilities in Queensland started shipping gas to Asia that would otherwise have been available to Australian homes and businesses.
Mr Smith said South Australia’s recent experience demonstrated the need for new supplies of gas to be opened up in Victoria and NSW, where onshore gas development is banned.
“We should all urge state leaders in Spring Street and Macquarie Street to address the energy challenges that face consumers… without additional gas production spikes in energy prices will continue to hurt consumers and manufacturers,” he said.
Mr Smith also called for more efficient ways of moving gas from Queensland to other states in the east-coast market. He said the auctioning of pipeline capacity 24 hours in advance should be adopted as a way of getting more out of existing infrastructure.
“There is opportunity for better utilisation of the pipeline systems that are there…the market rules have to keep evolving,” he said.
“Day-ahead capacity trading makes perfect sense to make sure there is better utilisation of the existing assets, because we need to make sure we don’t end up putting more money than is needed into the infrastructure.”
The comments come after Bloomberg’s “New Energy Finance” research arm published a note this week saying that an illiquid gas market was the most potent factor in last month’s energy crisis.
“For power prices to stay as low as possible gas markets need to function in the interests of consumers, not just producers and LNG exporters. Renewable energy does pose challenges, so economists and engineers need to work to adapt our decades old market and centuries old system to enable a cleaner, more diversified energy system,” BNEF’s Kobad Bhavnagri said.
Mr Smith also urged Australians to embrace immigration as a way in stimulating economic growth, particularly in rural areas.
Original article by Peter Ker, published by the Financial Review.